As the coronavirus outbreak continues to shake the global economy, concerns are growing amongst letter of credit (L/C) users as to how to cope with potential difficulties that may lie ahead.

There appear to be no widespread impacts so far, but some L/C users will remember difficulties in the wake of the 2008 financial crash when sellers of merchandise on board some ships became increasingly reticent about accepting L/Cs from unstable banks as payment guarantees from buyers.

China questions

Questions about what will happen may be most relevant in China where the extent of bank closures is unclear.

Some bankers are asking what will happen if banks are closed for an extended period or correspondent banks are unable to issue export L/Cs in relation to certain sales.

A failure in the sale contract could lead to an undrawn L/C while a delivery delay could lead to a bill of lading being issued after an L/C has expired.

US support

Levels of help for banks and businesses vary from country to country. The US administration is offering help for companies hurt by difficulties exporting products because of coronavirus and its impacts.

The Small Business Administration's Export Working Capital Programme can help small businesses obtain capital advances from lenders on L/Cs or export orders while the state insurance commissioners may be able to answer questions about insurance coverage for damages related to coronavirus.

Borrowers and lendersLawyers Allen and Overy say borrowers and lenders may need to review finance documentation and related arrangements to assess potential consequences and contingency measures.

They draw attention to the potential need for borrowers to question whether lenders will be able to process applications for credit support such as L/Cs when needed.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.